When Purchasing Real Estate, Don’t Waive Critical Contingencies
Removing contingencies from your real estate purchase is never a good idea. Waiving necessary due diligence through the mortgage, appraisal, or inspection processes to close the deal may create potentially negative short and long-term consequences. In some states, real estate agents may face litigation for breach of fiduciary duty if the covenant of good faith and fair dealing is lost. At no time should a buyer permit a real estate agent or attorney to waive important contingencies. Hiring an experienced local real estate attorney can protect you from signing off on these critical processes designed to protect your purchase.
A real estate lawyer is crucial to your successful property purchase. In particular, six states, including Alabama, Arkansas, Georgia, North Dakota, Virginia, and Wyoming, still adhere to the doctrine of “caveat emptor,” the Latin phrase for “let the buyer beware.” In principle, this statement indicates the buyer is solely responsible for checking the suitability and quality of goods before purchase. Waiving critical appraisal, mortgage, finance, or sales contingencies without understanding the consequences (preferably in writing) can be problematic unless the buyer has cash. If the financing falls through, the buyer will likely forfeit their contract deposit which is typically ten percent of the purchase price.
Don’t Rush the Process
Often the waiving of financing contingencies is a result of mortgage lenders or seller representatives encouraging the buyer not to worry through the use of vague statements. To ensure buyer security, you must go through the complete application and underwriting process. This is particularly true when the purchaser decides to sell their current home, using its proceeds to complete their new purchase. The seller agent of the buyer’s proposed purchase must inform that a specific sale contingency is part of the contract.
“As Is” Does Not Mean You Can’t Negotiate
Real estate transactions may use the term “as is” in the contract. Even with buyers conducting inspections, the seller and their agent assume that no matter the findings, the deal is “as is” and not negotiable. Or sellers believe that if an issue presents itself after the contract signature, there is no requirement to remedy it. Typically “as is” provisions include problems relating to plumbing, sewer, septic, well, electrical, etc. Some standard contracts require these systems and even home appliances to be in working order upon closing. After an inspection or contract signing, new property damage should require the seller to remedy the issue(s) before closing.
Potential and Hidden Problems
Certain market conditions will affect buyers to accept things they ordinarily would not. Aside from the financial concerns, many purchasers are unaware of the potential consequences and liabilities when waiving contingencies. Aside from standard property conditions, issues such as historic districts, unknown and degraded water and wastewater systems, high-risk fire and flood plains, neighboring registered sex offenders, adjacent land parcels with undisclosed easements, and noxious odors or loud noise emanating from nearby property can create information disclosure problems for a buyer.
Laws Regarding Flood Zones
In 2022, Federal Emergency Management Agency (FEMA) reported that home sellers in 18 states were not subject by law to disclose to potential buyers whether their property ever flooded or if their purchase of the property requires the purchase of flood insurance. And although FEMA in 2021 estimated approximately 13 million Americans are living within a one-hundred-year flood zone, Environmental Research Letters finds that when including the risk of river flooding, there are closer to 41 million Americans who are exposed to flood risk.
Any waiver of contingencies and protections reduces the buyer’s leverage to act on unwanted circumstances legally. The National Association of REALTORS® (NAR) posts its code of ethics and standards of practice under which all licensed realtors in the US should adhere. Many standards of practice and articles of good faith are associated with the NAR code of ethics. However, without a real estate attorney representing your interests in your state as a buyer, how a realtor conducts their daily practices can put you at risk. Contingencies are there for your protection, and only in unusual circumstances would your real estate lawyer recommend waiving these rights.
We hope you found this article helpful. Contact our Chicago area office at 630-568-6656 to discuss how we can help you with any legal questions you may have. We look forward to the opportunity to work with you.